Saturday, December 20, 2014

Does the NSA Demonstrate the Innovative Dynamism of the Public Sector?

One way to think about the shock of the Snowden revelations is that the NSA was much more skilled at surveillance, hacking and data-parsing than most of us thought. Whatever else it is, this is an organization that excels at technical innovation. It hires very smart people and motivates them to devise ever more sophisticated methods and products. And for all its secrecy and lack of accountability, it’s public sector. No doubt there are opportunities for spinoffs and lucrative insider contracts, but at its core it is not driven by the imperative of shareholder value.

Does this mean that state enterprises are capable of much greater dynamism than they are usually given credit for? To be fair, the same question arose during the Soviet era with the relatively advanced profile of the military and its space program, although in retrospect it is clear that the Soviets were not exactly the world-beaters they appeared to be at the time.

Of course, the NSA can draw on the world’s most advanced private tech industry, which the Red Army couldn't. Still, the fact that the NSA can play in that league and stay at the frontier says something. And this is more than just a claim about research productivity (as with, say, DARPA); the NSA is an operational enterprise. It deploys as well as invents.

One aspect of its work that favors public ownership—public monopoly, in fact—is that, for the most part, it has a single customer, the national security leadership. (It also serves private commercial interests in its espionage, as part of its public-private portfolio.) Thus, the “subjective” component of quality does not need a market to identify it à la Hayek.

I wonder, however, whether the NSA’s mission suffers from its centralization of R&D. When technical or productive questions can be tackled from many points of view, and where time matters, there is an advantage to a decentralized structure in which autonomous units can pursue trial and error projects simultaneously, along with a mechanism for weeding out the projects that underperform.

The Austrian mistake, in my opinion, is in failing to recognize that, while market institutions can provide a sufficient basis for this type of competitive simultaneity, they are not necessary to it. In principle, this can be approached in various ways. One is an enterprise that deliberately permits a substantial amount of autonomy to its subunits and encourages them to try out different solutions to common problems. (Hayek needs a Beer.)

What I would really like is a second round of disclosures, this time directed at students of organization and innovation. How effective is the NSA at what it does? How is it internally structured, and what can we learn from it about fostering innovation in an economy with a much greater measure of public control—which, of course, the NSA itself does not represent. (Its mission encompasses control of the public.)